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Treasury Securities Fall in Price

Prices of Treasury securities fell yesterday, as investors continued to worry that coming economic data might be strong enough to prompt the Fed to raise short-term rates.

The 30-year bond dropped 14/32, to a price of 97 6/32, pushing its yield up to 6.85 percent, from 6.81 percent on Monday.

Analysts also noted yesterday that concern was raised by an announcement by Fidelity's Magellan Fund that it had cut its bond position to eight-tenths of 1 percent in January from 3.8 percent at the end of last year and 18 percent when it changed managers about eight months ago.

Bonds came off their lows in the afternoon, when Robert McTeer, president of the Federal Reserve Bank of Dallas, said the Fed was on guard against inflation that might arise from tight labor markets but was not yet ready to raise rates.

''The labor markets are so tight there is a danger wage pressure will exceed productivity gains, and then higher wages could spill over into product prices,'' Mr. McTeer told a reporter before speaking to a group of community leaders at the San Antonio branch of the Dallas Fed.

''On the other hand, commodity prices are low, including gold, and are well behaved,'' Mr. McTeer said. ''So we are in the same place we've been for a year. We're on guard, but there's nothing to tip us over into tightening.''

The central bank's Federal Open Market Committee meets two weeks from now, on March 25, to consider whether to raise the overnight bank lending rate. Mr. McTeer is not a voting member of the committee; he was replaced by Jack Guynn, president of the Atlanta Fed, at the beginning of the year.

Patrick R. Ledford, senior fixed-income portfolio manager at Citibank Global Asset Management, said Mr. McTeer's comments raised investor hopes that the Fed would remain on hold at the March 25 Federal Open Market Committee meeting. But he believes the die was cast last week.

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''After the Greenspan comments a week ago, you can't expect bonds to rally on good inflation data,'' Mr. Ledford said. ''His comment diminished the significance of good data.'' Mr. Ledford's reference was to the comments by Alan Greenspan, the Federal Reserve Board chairman.

If the Fed does raise rates, he added, it will be the pre-emptive kind the chairman warned about. ''But we haven't seen any signs of higher inflation, though the risk of a Fed tightening is very real. We're constructive longer term from a fundamental standpoint, but tactically we're concerned like everyone on the Street.''

Among the reasons he cites for the Fed to remain on hold are moderate growth, low inflation, a strong currency and attractive higher rates relative to foreign rates.

David Shabelman, market analyst at MMS International, San Francisco, said Mr. McTeer's comments led to a short-cover rally, as investors betting that the market would go down, were forced to buy securities to hold down losses.

Short positions occur when some market participants sell borrowed securities, hoping to buy them back later at lower prices, thereby pocketing the difference. But if prices begin to rise instead of fall, as was the case after Mr. McTeer spoke, these participants have to cover their short positions by buying back the securities in order to limit their losses.

The afternoon release of the Redbook survey of retail sales, which showed a 1.1 percent gain for the period ended last Saturday, was fairly strong and weighed on the market. ''It only served to confirm the morning Mitsubishi report of a strong 1.3 percent rise in retail sales,'' Mr. Shabelman said. ''As the weekly retails sales continue to show strength, investors are growing wary.''

The market is still bearish, he continued, so selling continues on any upticks on strength. ''Our most recent survey is showing less than a fifty-fifty chance of a March tightening, which I believe the market consensus is. About 90 percent of the people surveyed think the Fed will act by May. So the data the market is to receive over the next couple of weeks is critical for those trying to get a jump on Fed intentions.''

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A version of this article appears in print on March 12, 1997, on Page D00020 of the National edition with the headline: Treasury Securities Fall in Price. Order Reprints|Today's Paper|Subscribe